管理層發言
Good day, and welcome to the Sify Technologies Financial Results for Second Quarter Fiscal Year 2024/'25. At this time, all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. I would now like to turn the call over to your host, Praveen Krishna of Investor Relations. The floor is yours.
Thank you. I'd like to extend a warm welcome to all our participants on behalf of Sify Technologies Limited. I'm joined on the call today by Mr. Raju Vegesna, our Chairman; M.P. Vijay Kumar, Executive Director and Group CFO, and Kamal Nath, Chief Executive Officer of Sify Technologies. Following on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Weber Shandwick at +1(212) 546-8260, and we'll have one sent to you. Alternatively, you may open a copy of the release at the Investor Information section on the company's corporate website. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the Sify corporate website. Some of the financial measures reported in this call may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standards, and will differ from the GAAP announcements made in previous years.
A presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protections afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause our actual results to differ materially from those described in the forward-looking statements, but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. I would now like to introduce Mr. Raju Vegesna, Chairman of Sify Technologies Limited. Chairman?
Thank you, Praveen. Good morning, and thank you for joining us on the call. The enterprise landscape in India is undergoing a transformative evolution, driven by a confluence of regulatory advancements, innovative business models, and robust infrastructure development. As we navigate this dynamic environment, it is clear that India is emerging as a global hub for information and communication technology. Regulatory frameworks are becoming increasingly conducive to business growth, allowing for an ecosystem that encourages innovation and investment. Initiatives, such as Digital India and the Make in India campaign, are streamlining processes and incentivizing entrepreneurship. This shift is not just about adopting new tools; it is about reimagining how we connect business and deliver value to our stakeholders. Let me now bring in our CEO, Kamal Nath, to explain the business highlights.
Thank you, Raju. As enterprises embark on their digital transformation journeys, they are reshaping their IT frameworks to integrate a diverse array of innovative solutions. The overarching goal remains the same: to enhance user satisfaction, ensure operational resilience, and safeguard digital assets. To support these ambitions, we are making significant capital investments and expanding our range of offerings. Our strategic focus on delivering innovative outcomes through a comprehensive suite of infrastructure and digital services uniquely positions us to partner with businesses during this pivotal transformation. Let me now expand on the business highlights for the quarter. The revenue split between the businesses for the quarter was data center colocation services at 32%, digital services at 32%, and network services at 36%. During the quarter, Sify commissioned 6.5 megawatts of data center capacity in Mumbai. As of September 30, 2024, Sify provides services via 1,069 nodes across the country, which is a 12% increase over the same quarter last year. Sify has now deployed 10,057 SD-WAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me bring in Vijay, our Executive Director and Group CFO, to elaborate on the financial performance for the quarter.
Thank you, Kamal. Good morning, everyone. We direct our attention to Sify adopting the new standard of the International Accounting Standards Board's recent issuance of IFRS 18 on presentation and disclosure in financial statements, starting with the last quarter ending June 30, 2024. By adopting the new framework, we seek to maintain clarity and consistency in our financial communication. Importantly, while our presentation may change, there is no change in the total income or net profit. Let me briefly summarize the financial performance for quarter two of financial year 2024/'25. Revenue was INR 10,275 million, an increase of 17% over the same quarter last year. EBITDA was INR 1,963 million, an increase of 29% over the same quarter last year. Profit before tax was INR 87 million and profit after tax was INR 49 million. Capital expenditure during the quarter was INR 2,594 million. The cash balance at the end of the quarter was INR 7,574 million.
We remain committed to cost-effectiveness and fiscal prudence in our operating decision-making. Our ongoing efforts reflect a forward-thinking perspective that anticipates market trends. We expect these efforts will positively impact our net profit in the near future. However, it is essential to acknowledge that these investments also lead to increased depreciation and interest costs in the financial statements. We are actively scaling our sustainable practices across all our businesses, with particular emphasis on our data centers. This commitment to sustainability is not just a compliance measure; it is integral to our long-term strategy and resonates with the broader digital transformation initiative being pursued by industries. I'll now hand over to our Chairman for his closing remarks.
Thank you, Vijay Kumar. The network, data center, and digital businesses are now attracting the best clients, partnerships, and capital. That is the beginning of our next phase of growth. Thank you for joining on this call. I will now hand over to the operator for questions.
分析師問答
Your first question comes from Greg Burns with Sidoti & Company. Please pose your question. Your line is live.
Good morning. Just a question about the demand environment. Where are you seeing the most demand growth coming from? Is it from hyperscalers or is it from enterprise customers? And then can you just talk about maybe how AI, the growth of AI is reshaping the demand environment? Thank you.
So Greg, this is Raju. As we grow, one of the things is that Sify is in a unique position; we are not just depending upon hyperscalers; we have a good footprint of enterprise customers in our data centers. That's the way we look at it. In the same ratio of hyperscalers and enterprises, we are continuously growing. To answer your second question on AI, it is just starting in India. Enterprises have begun looking at AI, and we have a big summit going this week, the NVIDIA AI Summit. We are part of the sponsors, and we are preparing our AI plans. As you already know, we are the first certified by NVIDIA for air cooling and liquid cooling up to 130 kilowatts per rack. So we are very excited about what NVIDIA is doing and we see a lot more potential, not only for Indian consumption but for global consumption supplied by India, equipped with the talent of IT resources to meet AI requirements. We see great potential for India, and we are ready. We are the first ones ready with data centers across three cities: Mumbai, Chennai, and Noida, which means Delhi.
Okay. Perfect. You mentioned, I guess, commissioning 6.5 megawatts of data center capacity in this past quarter. Can you just update us on maybe the number of data centers you operate, how much megawatt of capacity you currently have operational, and maybe what the roadmap is for the rest of the year? How much capacity do you expect to bring online for the remainder of this fiscal year?
So Vijay Kumar here. We currently have data center capacity, which is live and operational, at about 120 megawatts, of which 105 megawatts is already being consumed by the customers; the rest are in different stages of contracting. Beyond that, there are greenfield projects, which we commenced last year, which are nearing completion and should go live in the next few months, where these facilities have a design capacity currently of about 52 megawatts in total, but are scalable much higher, of which initially we will enable about 6 megawatts to go live.
All right. Perfect. Thank you. In the quarter, digital services were a lot stronger than we were modeling. Was there anything in particular driving that? Was it from project-based technology integration services work or more recurring cloud and managed services type growth?
This turnaround in quarter two is attributed to some project-based revenues in our network managed services business, and that has contributed to the positive change in this quarter.
Perfect. Okay. And then in terms of the new nonconvertible debt that you took on, it seemed like the rate was pretty favorable. How did that rate compare to your existing debt, and are you planning to use that new debt to pay off some of your old debt, or is it just going to be put towards maybe investments in the business?
Yes. This debt was raised in our data center colocation subsidiary, and it is listed on the Bombay Stock Exchange. This is a 15-year debt with a 5-year moratorium, and repayment starting from the sixth year onwards, one-tenth over the remaining 10 years thereafter. In terms of the cost of this debt, it is about 40 basis points lower than the debt it is replacing. These entire proceeds have been used for replacing the existing debt. The existing debt was due for repayment over the next 18 months, whereas this new debt has a longer tenor, which effectively releases funding for the growth of the data center capacities.
Okay. Perfect. And the debt balance and cash balance that you mentioned does that include... I guess, I'm sorry, you're just replacing, but that includes this...
Exactly. You're right. You got it right.
Okay. And then in terms of spending, your SG&A, maybe as if we look at it as a percent of revenue, do you expect that given the investment roadmap that you have laid out? Do you expect that to increase as a percent of revenue or kind of maintain at the current levels?
It should maintain at the current level. We have actually invested quite a bit on SG&A over the last three years, and with the assets getting monetized, we should be able to maintain current levels for the foreseeable future.
Okay. Okay. Perfect. That's all for me.
Thanks, Greg.
Your next question is coming from Jonathan Atkin with RBC Capital Markets. Please pose your question. Your line is live.
Thank you. I was interested in what you're seeing among Indian domestic enterprise commitments. This is now for your data center business or are we talking about multi-year contract terms? Can you give us a flavor for that? And how that might compare with the length of the commitments that you're signing with some of your international customers?
As far as the data center customers are concerned, as Mr. Vegesna mentioned in response to the previous queries, we have customers who are hyperscalers and enterprise segments. The hyperscale contracts average around 9 years, which are renewable thereafter. The contracts for enterprise customers are on average about 5 years, with potential for renewal thereafter. Our past historical experience has shown we have had almost 0% churn in our customer base.
And then I'm interested in the customer preferences, particularly on the international side for your larger deals. Are the customers expressing a preference for you to build the full turnkey data center, or to what extent are they preferring or willing to perhaps take towered shelves, where they complete the fit-out work after you deliver the shell?
Jonathan, this is Raju. It is both ways. There are build-to-suit opportunities, and there is a shell kind of model, as well as the colocation model. They are mixing based on demand. In a build-to-suit model, it takes longer time. When opportunities arise, and they do not have a requirement, they can adapt to the colo-model.
I've got a couple more if you'll bear with me. So I'm interested in just kind of... you mentioned AI. Any inkling that you have as to what that means in terms of the customer use case? Are we talking about machine learning? Are we talking about large foundation models? Is it AI infancy at this point? What do you see today? And then maybe going forward, as best as you can tell over the next couple of years, how is the topology evolving within India?
The way I look at it is as follows: AI is still evolving in India. From the enterprises' point of view, they are building models and correcting data to implement AI in India. What I see is some of the hyperscalers already having AI capability; people are adapting. Additionally, to deploy AI, you need to have certain kinds of data centers and other training IT resources to run those models. Being in India, equipped with data centers, power, and skilled personnel, I believe India is in a unique position to take advantage of this AI evolution. That is my perspective; it’s just starting in India.
Last question or two. A lot of foreign capital and joint venture capital are coming into India with significant build ambitions. I'm interested in the implications it has on you from a competitive standpoint—whether these are mutually validating types of capital allocations, like a rising tide with all boats—or do you view that as competitive? Any implications from this data center development on your network services business?
No, I think that will always be there. India is attracting many people to deploy their capital, which signifies that they are backing India. Being an established player, we have our mindshare and market share. That is how we view it. We are one of the few capable of delivering end-to-end data center services, building from ground up and customizing data centers with varying requirements to ensure AI readiness, such as preparing for 130 kilowatts per rack. We are not just a real estate player; we are a technology-driven data center player, built over 20 years. We are developing generation 3 data centers, and that is our advantage.
Lastly, the Indian fiber markets, particularly in dark fiber. Can you describe the landscape? You obviously have a big part of your business, but are there any other investments and deployments that you see going on in the industry overall around dark fiber?
Yes. Now that you have cloud on the data center, the old server-client model is evolving, and networking plays a significant role. Our networking business is also growing alongside our data centers. We are in a unique position to handle both network and data center opportunities. Even if it’s not our data centers, we still provide connectivity to them. So I believe both the network and data center sectors are expanding, and some existing networks are outdated and unable to service bandwidth requirements, especially for AI applications. This presents a great opportunity for us to develop new networks with advanced technologies.
Your next question is coming from Sri Gopal Bajaj with HiFi Advisory Services.
This is Sri Gopal Bajaj here from Stock HiFi Advisory. Am I audible?
Yes, yes. Please go ahead.
Yes. What is your current data center capacity that is already on colocation, and what is the future plan that is coming online?
We cannot discuss much about the future. We have data centers in six markets in India: Mumbai, Chennai, Bangalore, Hyderabad, Kolkata, and Noida, which means Delhi. We are an established player and one of the top players in the data center space, hosting both hyperscalers and enterprises. We have been in the data center business for over 20 years.
What is the current size, at least that you can disclose?
Current size, we have 120 megawatts of capacity, which is built, of which about 105 megawatts is already under consumption by the customers, and the remaining is at different stages of contracting.
Going forward, you still intend to continue with your debt position in the same manner, or do you have plans to cut down on the debt?
No, debt will be an integral part of our data center capacity expansion. Typically, our model is to take two-thirds of our project cost as debt; the rest is funded by equity, including internal accruals.
You cannot disclose the future plans. Is that clear?
Yes, yes. We are bound by the forward-looking statements restrictions that are there.
Okay. Your next question is coming from Shrikant Pigaga. Please pose your question. Your line is live.
Good evening, everybody. Mr. Raju, Mr. Kamal Nath, and Mr. Vijay Kumar, congratulations on a good set of numbers and also returning back to profits. I have some very specific questions; please excuse me if there is anything that sounds out of normal due to my lack of knowledge about part of your business. If I understand correctly, the network services had some royalty or some kind of an income this quarter. Is that evident to put the company this quarter back into profits? Are there any one-offs?
Sorry, your voice was not coming clearly. You said net worth something...
Can you hear me now?
Yes, better. You said something around the network business.
Yes, there was some additional income or license you are referring to in this quarter or some kind of a fee or an income. How much of that has contributed to the profit this quarter? So the question is, are there any one-offs in this quarter?
No, there are no one-off items in our network business. The network and data center business largely generate annuity-type revenue. With the IT services business, there are always some projects that get executed in quarters.
Okay. Okay. So if there is an additional one client in the next quarter, it could be some other client that could be contributing. Is that correct?
Correct. The size of the project could vary.
Right, right. I mean, I have a few questions. I'll go to my second question if it is okay.
Please.
Please.
So the gross margins are always going to be in that 30%, 35%, 36%, 34% kind of range. Given that this is more of an IT services kind of company, I would have thought the gross margins would be closer to 50%. Is my understanding wrong?
Yes. We broadly have three businesses with quite distinct characteristics, and all three business areas generate revenue approximately 1/3 each. As for the network services, it is a reasonably asset-light model with a substantial amount of expenses being capacity leased from third-party telecom operators. For our data center business, power represents a significant cost, which is largely a pass-through from customers, paid to state electricity boards. For the IT projects and services business, we have a combination of project-based and service-based revenues, which include substantial expenses incurred for capacity building over the past two years. Thus, while the margins you mentioned are accurate, you need to dissect those businesses for a better understanding.
But even at the consolidated level, is it possible for the gross margins to be above 50%, considering this is not a manufacturing-intensive kind of business?
I wouldn't be able to comment on that. At least in the foreseeable future, it's unlikely to reach that number.
Okay. So I'll move on to my next question. Given that the interest expense and depreciation for a company building a lot of capacities will always grow along with revenue, can we consider that the numbers currently we are seeing this quarter for depreciation and interest expense as peak levels?
No, the depreciation will increase quite substantially. There are a couple of greenfield projects expected to go live in the coming months, which will drive up depreciation. Similarly, the interest capitalization on projects under construction will also impact the interest expenses.
And all the loans are INR-denominated, or do you have any foreign loans?
No, all the loans are INR-denominated.
Okay. And I see that the cash balance has increased from around INR 50 million to INR 90 million, is that right?
You're right. Two reasons: One is that we recently did a rights issue, and those proceeds are to be fully deployed in expansion. The second reason is some marginal improvement in operating efficiency.
In terms of any specific numbers, I know there is some moratorium on the new loan, which was recently converted into bonds. There is a 5-year moratorium. Does it mean that the interest doesn't have to be expensed into the P&L for 5 years?
No. The interest will come into P&L and will also be a cash flow. Only the moratorium applies to the principal.
Okay. Thank you for the clarification. So now, with respect to SG&A, depreciation, and interest expense, these items take away a substantial part of the contribution or margin generated by the business. At what stage, considering you have ambitious plans to build more data centers, do you foresee the path to free cash flows being several quarters or several years away?
Yes. If you are looking at free cash flow after considering new capital expenditure, then it is certainly a few years away. The data center industry is poised for a higher CAGR, and a substantial amount of capacity will be added by us and our peers in the industry as well. I don't think any of us will slow down the expansion of our data center capacity. However, if you're looking at free cash flow only after replacement CapEx, we are currently well positioned and will continue to have positive cash flows.
And all the future expansion funds you mentioned of around $600 million to $700 million to be deployed over the next several years will be a combination of debt and internal accruals?
Yes. You're right.
Okay. Thank you, Mr. Vijay Kumar. I'm done with my questions. But once again, congratulations to the team for returning to profits, and we hope that next quarter you will perform even better.
Thank you.
We do have a follow-up question from Sri Gopal Bajaj with HiFi Advisory Services.
Mr. Vijay Kumar, can I just know what your realization per megawatt is?
These are customer-specific numbers, Gopal.
No, average realization.
I don't think we... I don't think it will be appropriate. But it's available in our published financials, the gross revenue. And I told you about the capacity; you could do reverse calculations based on that.
I did the backward calculation. I was getting around INR 1 crore per month in Indian terms...
Okay.
So the other two businesses are giving you very thin margins. Are you doing anything for that part of it? One is the networking; the other part is like hardly on gross profit of a few percentage points, mid-teens also.
Correct. So there's a lot of work we are putting into our IT services business. We see a huge opportunity as India embraces more digitalization. However, new service businesses in India often come at low margins and are subject to scope creep. We are steadily improving our processes, but fundamentally, we believe that Indian enterprises will increasingly consume more IT services from providers like us, and we plan to stay invested in that business.
Thank you, sir. Once again, congratulations.
Thank you.
Thank you.
There appear to be no further questions in the queue at this time. I would now like to turn the floor back over to Praveen Krishna for any closing remarks.
Yes, this is Raju again. Thank you for your time on this call. We look forward to interacting with you throughout the year. Have a good day. Thank you.
Thank you, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.